Elder Impulse System: colouring bars by trend and momentum together

What it measures

The Elder Impulse colours each bar green when both a moving average and the MACD histogram are rising, red when both are falling, and blue when they disagree.

It combines a trend measure and a momentum measure into a single visual, so the two never have to be read separately.

Elder designed it as a permission system rather than an entry signal: green means long positions are allowed, red means shorts are allowed, blue means neither.

How it is calculated

These are the steps Basis performs, verified against the published definition.

1. 1

   Compute an exponential moving average, conventionally thirteen periods, and check whether it rose from the previous bar.

2. 2

   Compute the MACD histogram and check whether it rose from the previous bar.

3. 3

   Colour the bar green if both rose, red if both fell, blue otherwise.

Settings

Thirteen for the average and the standard twelve, twenty-six, nine for MACD is the original. The colours are a function of two other indicators, so tune those and the system follows.

How to read it

• Green does not mean buy. It means selling short is forbidden by the system.
• Blue is the most common colour and marks a market where trend and momentum disagree.
• A run of green ending in blue is momentum fading while trend persists, which is where trends usually stall.
• The colour changes on the current bar and can change again before the bar closes.
• Used as intended it removes trades rather than finding them, and the value shows up as the losses you did not take. Traders who add it to an existing system and count only the entries it blocked usually conclude it costs them money, which measures the wrong side of the ledger.

Where it misleads

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